Share the post “Pakistan’s Debt Crisis Is About Expenditure, Not Taxes — And PSX Knows It”
Major Federal Expenditures (FY25–26)
| Category | Allocation (PKR) |
|---|---|
| Debt Servicing (Total) | ≈ 74.1% of federal net revenues |
| Defense | 2.55 trillion |
| Pensions | 1.055 trillion |
| Subsidies | 1.186 trillion |
| Grants & Transfers | 1.778 trillion |
| Development (PSDP) | 2.869 trillion |
| Total Current Expenditure | 16.286 trillion |
Critical detail:
Domestic debt interest alone accounts for ≈ 87.7% of total interest outlays.
This is a classic debt-servicing spiral:
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Borrow more → pay higher interest
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Pay higher interest → collect more taxes
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Collect more taxes → still borrow more
At this point, taxation is no longer developmental. It is maintenance spending.
Inflation Was Cost-Push — Policy Treated It Like Demand-Pull
One of the most consequential policy errors of the last cycle was misdiagnosing inflation.
What Actually Drove Inflation
Based on the PRAC analysis and your supplied charts:
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Global commodity prices surged post-COVID
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Exchange-rate pass-through amplified costs
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Energy tariffs and food supply shocks dominated
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Flood-related agricultural losses worsened pressures
This was cost-push inflation, not an overheated demand cycle.
What Policy Did Instead
The State Bank of Pakistan responded with aggressive rate hikes:
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Policy rate peaked near 22%
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Inflation peaked at 38% (May 2023)
The Result
